In today's article from the series "Tuesday Mornings for Construction Workers", we will analyze for you issues related to the division of mortgaged properties.
Pursuant to Article 76 of the Act of 6 July 1982 on Land and Mortgage Registers (" UKWiH "), in the event of a real estate division, a mortgage encumbers all real estate created by the division . It is irrelevant whether the division occurs physically or through a legal act. The division of real estate results in the separation of two or more new real estates. Dividing a mortgaged real estate results in the new real estates being legally covered by a mortgage, which from that moment onward constitutes a joint mortgage. The consent of the owners of the separated real estates to be encumbered with a joint mortgage is not required. The entry of such a mortgage in the land and mortgage register is declaratory in nature and may occur at any time. This is because no new security is created, but only the subject of the security is multiplied.
If a mortgage is established on a share in the ownership or perpetual usufruct of a part of real estate and joint ownership , the mortgage encumbers the real estate received as a result of the dissolution of joint ownership by the co-owner whose share was encumbered with the mortgage . This applies to both contractual and judicial dissolution of joint ownership. In such divisions, it is also important to remember that any provision of the agreement or court settlement dissolving joint ownership under which the co-owner whose share was encumbered with the mortgage does not receive repayment or additional payment is invalid.
If a co-owner of a property whose share was mortgaged is entitled to repayment, the mortgagee has a statutory lien on the receivables arising from that receivable. The priority of the statutory lien on the repayment receivable is determined by the priority of the mortgages encumbering the co-owner's share.
A mortgage creditor who is entitled to a joint mortgage on two or more real estate properties may divide it between individual properties , however, such an action is of a dispositive nature and produces legal effects in the form of the creation of independent mortgages only when they are disclosed in the land and mortgage register .
There are also no obstacles to the owner or perpetual usufructuary encumbering more than one real estate with a joint mortgage at the time of establishing the mortgage.
Moreover, pursuant to Article 22 of the UKWiH Act, limited property rights encumber the entire property created by the merger. This means that previously established mortgages (prior to the merger) encumber the entire property created by the merger. The content of each mortgage remains unchanged. However, in the event of a conflict between mortgages held by different creditors, previously encumbering individual merged properties, the mortgage creditors must reach an agreement regarding the order of entries in Section IV . In the absence of such an agreement, the land and mortgage register court may refuse to merge the properties.
From the perspective of buyers of residential premises or single-family homes, paragraphs 4 and 5 of Article 76 of the Land and Mortgage Register (UKWiH) are crucial. Primarily, if the buyer's claim was entered in Section III of the land and mortgage register before the mortgage was entered, then in the event of property division , the mortgage encumbering the property does not encumber the properties created by the division , i.e., the residential premises or the property developed with the single-family house. However, if a mortgage already existed, in the event of property division involving the establishment of separate ownership of the premises or the separation of a separate property developed with the single-family house from the existing property, the buyer of the divided property may request a division of the mortgage in proportion to the value of the properties created as a result of the division. However, if the manner of mortgage division was specified in the mortgage agreement and disclosed in the land and mortgage register, the division shall be effected in accordance with the provisions of the agreement.
This is intended to protect buyers purchasing apartments or houses as part of ongoing development projects. Additionally, a developer establishing a mortgage on a property is required to obtain and attach to the development agreement the consent of the bank or other mortgage creditor for an unencumbered transfer of the property to the buyer upon payment of the full purchase price by the buyer, or a commitment to provide such consent. Failure to obtain such consent or a promise thereof may result in a fine, which may be imposed by the developer.
In summary, encumbering a property with a mortgage does not preclude its division or merger. However, it does affect the rights and obligations of the owner/perpetual usufructuary and the purchasers of such property.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of April 22, 2025
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